1.1.9. Impact Entrepreneurship

Now Impact Entrepreneurship is a term that refers to the creation of enterprises that are ethical, transparent and have meaningful impact on our lives. Now, when we think about a firm having an impact on our lives it’s natural to think about non-profits or philanthropies. Impact entrepreneurs are not necessarily those, because unlike non-profits and unlike philanthropies, they’re focused on profits. And they’re focused on long-term sustainability. They do not rely on donors, and they are in fact, focused on creating social impact through market strategies. At the same time, unlike traditional entrepreneurs, impact entrepreneurs are focused on double or triple bottom line. Now if you look at what exactly is a triple bottom line the first bottom line is profits, which is a bottom line that is the traditional accounting bottom line and every enterprise is focused on that. But in addition an impact entrepreneur is focused on other aspects. For example, the second bottom line is social impact. A triple bottom line is profits, social impact, and environmental impact.
And so there are many dimensions to the mission of a social enterprise or an impact enterprise. And in fact impact entrepreneurship is synonymous with the term social entrepreneurship but it can sometimes involve other areas beyond social impact, for example environmental impact. If you consider Tesla, the company is trying to save the planet from fossil fuels by pushing electric cars. And so it has an environmental impact. And furthermore it’s committed to that goal beyond profits by making its patents available in an open-source manner to the whole community, so anyone else can leverage the R&D done by Tesla. And that again shows that Tesla has a bottom line beyond profits, and environmental impact is a big part of that. Now typical areas that are addressed by impact entrepreneurs include health care, energy, sanitation, education and areas of that nature that have great impact and are sometimes under-served as well. There are many well known social entrepreneurs out there. Perhaps the most well known social entrepreneur is Muhammad Yunus who is a Nobel Laureate, and was the founder of Grameen Bank. A company that created the entire industry of micro finance. Now Grameen Bank is a micro finance organization that provides small loans to the rural poor in Bangladesh. The company has provided loans to over 8 million borrowers and has had repayment rates of over 95%. The company is not reliant on donors and is self sustained based on interest rates that it charges for these loans. Another well known social entrepreneur is Iqbal Quadir who is a founder of Grameen GrameenPhone, which is a concern that is partly owned by Grameen Bank. He partnered with Muhammad Yunus to launch a mobile phone operator in Bangladesh. It was founded based on the belief that providing connectivity to the poor in Bangladesh will help increase their income, improve their livelihood by providing them better job prospects. And in fact, today, Grameenphone is the largest operator in Bangladesh with over 50 million subscribers. Another alumnus of Warton money, Sabharwal, the founder of Teamlease is another example of an impact entrepreneur.
His company, Teamlease, is focused on skills developement and job placement for people with limited access to education and employment opportunities. Currently they’re focused on employment and employability in India and have helped over one million people in India find jobs. Now notice that in all these examples I mentioned these entrepreneurs and their respective enterprises are focused on profits, they are indeed for profit enterprises. They do have a business model, but at the same time they have a very clear social mission. And that pairing of profit focus and social impact focus makes them social entrepreneurs or impact entrepreneurs. Now social entrepreneurs in most ways have to do the same kinds of things that other entrepreneurs need to do. For example they also need to solve the product market fit question, they have to hire the best people with a limited budget. They have to manage finances. They have to figure out how to grow, so the same kinds of things. But at the same time, there do exist some differences and some unique challenges that social entrepreneurs or impact entrepreneurs face. One of those really important ones is scaling.
It is not the easiest to scale a social enterprise, because often these entrepreneurs pick some of the toughest problems. And these problems are therefore just because of the selection bias, not the easiest to scale or grow. Furthermore, the social goal has certain costs, and very real costs associated with it. For example, the cost of reaching remote or under-served populations. So, the costs add barriers, and make it difficult to scale beyond an initial community or two.
Now, while it’s hard to scale any enterprise, I think scaling a social enterprise is even harder because of these kinds of issues. So, a social entrepreneur needs to think about how do I scale much more?
There are several avenues available, for example. one avenue might be scaling our two partners. So if you want to increase your geographical reach, you can perhaps do so through franchises. So you train others and they help take your idea or innovation to the field in other regions or one might partner with another organization that has last mile reach at scale. So, for example, one might partner with the Red Cross or with YMCA organizations that have significant geographical coverage and reach and great last mile connectivity, when needed.
In other cases, the barrier to scaling might be policies set by the government. In these cases, the way to address scaling is to influence policy change. For example, for Teamlease, the company I mentioned earlier that provides job opportunities in India, a primary growth barrier tends to be lack of clarity regarding labor laws in India. And so clearly for the company to scale one of their big investments has been in driving policy changes in the country.
Now another way in which social entrepreneurship, or impact entrepreneurship defers from traditional entrepreneurship is in the way one manages the whole process of fundraising and financing. Now traditional venture capitalists are often not an option for impact entrepreneurs. Venture capitalists often want to exit their investments in 5-7 years. Because their fund life is usually no more than about ten years. And social ventures often need more time because, as I mentioned earlier, they scale a bit slower than traditional ventures. And so one needs patient capital in order to support the growth. And so when one is looking for patient capital, you might not often look at traditional venture capitalists but you might look elsewhere for example philanthropic foundations like the Gates Foundation or Ford Foundation. These foundations often focus on specific areas they issue calls for proposals and once they receive the best proposals they decide who to issue their grants to. Government grants are also another source of funding for social entrepreneurs.
And finally, there are impact-oriented venture funds like Khosla Impact fund, the Acumen fund, Omidyar fund. There are all venture capitalists, but who are willing to be more patient because they’re focused on social impact and they understand that the capital needs to be more patient here. Now many funds are focused on impact but they aren’t always patient capital So, one has to really think hard about what’s the likely time to maturity for my business. And compare that to investor expectations and make sure they’re aligned. Now traditional venture capitalists are sometimes an option when a social enterprise meets some of their main criterias such as large market size and the ability to scale fast and so there are many instances of enterprises that have significant social impact that are very mainstream companies in the sense of raising money through mainstream sources, like VCs, that is venture capitalists, and that are run in a very traditional manner, as well. Now, while I’ve talked about impact entrepreneurship and social entrepreneurship, one also sees instances where traditional enterprises adopt social missions, and that’s certainly something that traditional entrepreneurs should also consider. A great example of that is Warby Parker, which is a prescription eyeglass retailer that sells eyeglasses online. Warby Parker has a buy one, give one model, wherein the company provides free eye glasses to underprivileged communities for every pair of glasses that are purchased on WarbyParker.com. And the company has donated over a million pairs of eye glasses to date through this model. Tom’s which is a shoe retailer uses a very similar buy one, donate one model. Where every time you buy a shoe from Toms, you actually are also donating a pair of shoes to somebody who’s in need. Now, it’s important to recognize that these kinds of models do cost money. So the important question is whether the social mission contributes to profits and how to prioritize the social mission relative to other priorities that the company might have. Neil Blumenthal, who’s a former student of mine, and who is a CEO of Warby Parker,
once said that customers often put fashion and design first when it comes to selecting their eyeglasses. Cost is next for them, and quality is third, and perhaps Warby Parker’s social mission is fourth, so clearly the social mission is not the primary driver of consumer behavior.
But none the less it creates a certain brand personality for Warby Parker, and that brand personality, in turn, drives consumer choice. Because one thing that we observe is that consumers are increasingly purpose-driven. And they’re aware of the social impact of their purchases and therefore this is a factor that they’ll keep in mind perhaps as a tie breaker or perhaps this is the one thing that’ll help nudge them over when they’re torn about making a purchase. Furthermore, a social mission is a great recruiting tool, so for Warby Parker it’s a tool that helps potential employees get excited about the opportunity at Warby Parker. It helps them retain people, because people like to believe that their work contributes more than just helping moving dollars around, but that there is a secondary impact as well. And so in that sense, the social mission has been valuable to Warby Parker. So in summary if your idea has double or triple bottom line impact, meaning it has an impact on environmental aspects or it has social impact as well. One question worth asking is whether I should run my business as any other enterprise or should I approach scaling my business or fund raising differently because my business is more like a social enterprise than a traditional enterprise.
At the same time, if you have a traditional enterprise, it’s worth asking whether a social mission should be a core mission for your organization. If so, the next question is, how do you marry a social mission through a for-profit model that you have in your organization.
From what we have seen, there are a few principles that can be applied. The first is that you want to lead with the product first and the mission comes next because first and foremost customers select your product or your firm because you solve a fundamental pain point for them. The social mission comes in after that. Secondly, the mission should be authentic and believable. There is no point trying to force fit a mission just because you think it helps branding, because it invariably doesn’t work out, and customers see through that. And finally, the social mission should be implemented in a very simple, easy to understand format. For example, think about Warby Parker, they sell eyeglasses, they want to help People who can not afford eyeglasses get access to eyeglasses, and they implement a very simple buy one, give one program that is very easy to understand for any potential customer. So in conclusion, let me say that most of what we have to say in this course about identifying the opportunity, and growing the enterprise is just as applicable for social enterprises as they are applicable for traditional enterprises. And so if you’re a social entrepreneur, stay tuned.

Jim Rohn Sứ mệnh khởi nghiệp